US ethanol groups sue EPA over 'secretive' small refinery exemptions

May 30, 2018

Written by Renewable Fuels Association

May 30, 2018 - The Renewable Fuels Association (RFA), National Corn Growers Association (NCGA), American Coalition for Ethanol (ACE) and National Farmers Union (NFU), with support of Farmers Union Enterprises, filed suit on May 29 in the U.S. Court of Appeals for the 10th Circuit to challenge several waivers from the Renewable Fuel Standard (RFS) that the U.S. Environmental Protection Agency (EPA) granted in secret to profitable refining companies.

The petitioners are challenging three EPA decisions, made under unusually clandestine proceedings, to exempt refineries in Wynnewood, Oklahoma; Cheyenne, Wyoming; and Woods Cross, Utah from the RFS requirements of the Clean Air Act. The Wynnewood refinery is owned by Wynnewood Refining Company, a subsidiary of CVR Energy, and the Cheyenne and Woods Cross refineries are owned by Holly Frontier Corporation. The companies have since estimated in financial disclosures that the exemptions have saved them a collective $170 million in compliance costs.

When Congress enacted the RFS program a decade ago, it sought to protect certain small refineries from the law’s impacts temporarily by providing an exemption for refineries with no more than 75,000 barrels per day (bpd) of crude oil throughput. After a two-year blanket exemption expired, Congress also allowed those same refineries to ask for extensions of the temporary exemption if they could show that compliance with the RFS program was causing that particular facility a “disproportionate economic hardship.” Until late last year, EPA only granted a handful of exemptions per year. EPA denied many extension requests, presumably because the refineries failed to meet one or more of these requirements for an extension. In recent months, EPA has granted over two dozen exemptions—including the ones challenged here—without providing any basis for its reversal.

“EPA is trying to undermine the RFS program under the cover of night,” said Bob Dinneen, CEO and President of RFA. “And there’s a reason it has been done in secret – it’s because EPA is acting in contravention of the statute and its own regulations, methodically destroying the demand for renewable fuels,” continued Dinneen. “With the little information we’ve been able to piece together through secondary sources, it’s clear that EPA has been extending these exemptions to refineries that didn’t qualify for them.”

Although EPA typically publishes its proposed actions and final decisions in the Federal Register, EPA has not followed those protocols for small refineries; nor has EPA even informed the public by any means that it had received or acted on such carve-out requests. Instead, the petitioners learned of the unprecedented number of exemptions second-hand, through media reports and secondary sources.

“EPA left us with no choice but to challenge their systematic cuts to ethanol blending in the U.S. by distorting the intent of the law to grant secret hardship waivers to refineries which in some cases exceed the definition of ‘small’ and fall short of demonstrating ‘disproportionate economic hardship,’” said Brian Jennings, CEO of ACE. “We cannot sit by and allow EPA to violate the RFS which requires increasing the use of renewable fuels in the U.S.”

The petition also notes that EPA has consistently rejected all attempts to bring greater transparency to the small refinery exemption extension process. EPA has refused to provide even the most basic information requested in Freedom of Information Act (FOIA) requests from RFA and other parties. More surprisingly, the Agency has also ignored demands from members of Congress for the same essential facts.

“EPA’s improper handling of the RFS has significantly cut demand for biofuels grown and produced by American family farmers and their communities. The success of the law lies in the requirement that certain amounts of renewable fuel be blended into our transportation sector. Yet EPA has unlawfully allowed massive refineries to skirt compliance with these requirements, effectively reducing the amount of renewable fuels blended into the transportation sector by more than one billion gallons. These actions must be reversed immediately,” according to Roger Johnson, President NFU.

The petitioners are not challenging EPA’s underlying authority to exempt certain small refineries; rather they are challenging three granted exemptions as abuses of EPA’s authority. EPA should be forced to explain why an otherwise profitable refinery faces disproportionate hardship from compliance with the RFS. We want EPA to explain why it is reasonable for HollyFrontier, which apparently could not afford to comply with the RFS, could nonetheless afford to undertake a $1 billion stock share repurchase program during the same time—and that’s before the company received over $300 million in tax cuts last year. Likewise, the petitioners would like to understand how EPA could find hardship at CVR Energy, which reported a $23 million profit in the biofuels credit market in the first quarter of 2018 due to what it called a lower RFS obligation.

“With their rapidly rising profits, it’s difficult to see what economic hardship these refineries are facing. The apparent lack of hardship raises serious questions of why EPA granted these exemptions, which is compounded by the fact that there is zero transparency in EPA’s small refinery exemption process,” said Kevin Skunes, president of the National Corn Growers Association. “America’s corn farmers, who are expecting their fifth consecutive year of low commodity prices and who are experiencing the lowest net farm incomes since 2006, understand economic challenges. When refineries are reporting profit increases and repurchasing stock shares, we expect EPA to explain why these refineries were granted exemptions from their RFS volume obligations.”

In practice, EPA is attempting to use the small refinery exemptions to waive a significant part of the annual volumes of renewable fuel that are otherwise required to be blended into transportation fuel. Based on EPA data, RFA estimates that small refinery exemptions granted for the past two years have effectively reduced volumes of renewable fuel by as much as 1.6 billion gallons. In enacting the RFS program, however, Congress did not envision the small refinery exemption process would be abused in such a way.